SMM Copper Market Daily Review (2013-3-25)

SHANGHAI, Mar. 26 (SMM) – SHFE 1307 copper contract opened RMB 350/mt higher at RMB 56,050/mt on Monday as LME copper rose overnight. After the opening, the most active SHFE copper contract jumped to RMB 56,260/mt, but later moved lower as shorts entered the market. Later, SHFE copper for July delivery did stabilize near RMB 56,000/mt as longs also entered the market. However, SHFE 1307 copper contract found its low at RMB 55,870/mt at the tail of trading as many investors closed positions. Finally, the most active SHFE copper contract ended the day up RMB 190/mt or 0.34% at RMB 55,890/mt. Trading volumes increased 7,578 lots, while positions also increased 3,028 lots. SHFE copper is still under selling pressure at highs. 

Spot copper premiums were RMB 20-100/mt in Shanghai on Monday. Traded prices for standard-quality copper were between RMB 56,080-56,180/mt, and RMB 56,100-56,280/mt for high-quality copper. Prices for the most active SHFE copper contracts marched down after a high opening, stimulating cargo holders to sell for cash at high prices. Spot copper premiums fell, especially that of high-quality copper, leaving no arbitrage opportunities for middlemen. Downstream producers purchased only a small amount of goods against stagnant copper prices. Wait-and-see sentiment dominated the market. In the afternoon, SHFE copper prices staged rebound, with goods in spot copper market abating. Mainstream traded prices for spot copper were up to RMB 56,100-56,300/mt, leaving spot premiums over the most active SHFE copper contract price at RMB 30-120/mt, but trading remained modest.

SMM survey shows that 26% industry insiders believe copper prices will extend the increase, with LME copper stabilizing at USD 7,700/mt and SHFE copper prices standing above RMB 56,300/mt. The US economic data remained upbeat, and the release of durable goods orders, housing data and final 4Q GDP will help lead copper prices to increase. Meanwhile, the turnaround for the Cyprus crisis sent the euro up and drove the US dollar to close lower for four trading days, leaving room for copper prices to rally. Besides, both SHFE and LME copper prices have increased above the 5-day moving average, with support strengthened. Thus, these market players believe copper prices will rebound this week.

42% of the surveyed investors are cautious, expecting LME copper to remain at USD 7,620-7,680/mt and SHFE copper prices to move around RMB 56,000/mt. The US dollar index should keep vacillating this week after meeting resistance, affecting the price trends of LME copper. Gold and oil prices were relatively strong but were still under resistance. In China, the positive economic data and stabilizing economy gave a boost to market confidence and benefitting domestic stock markets. However, as 28 companies’ unlocked shares worth of RMB 25 billion will enter the market this week, the A-shares will be weighed on. In this context, some investors expect copper prices to fluctuate narrowly this week.

The remaining 32% industry insiders believe LME copper prices will fall below USD 7,600/mt while SHFE copper prices should test RMB 55,500/mt. Cyprus has reached preliminary agreement with international creditors on its banking system restructuring, and obtained bailout. However, this also damped market confidence in Cyprus banking sector. Moody’s noted that the Cyprus Parliament’s approval and implementation of the program required by the creditors, even in the best of circumstances, will place the country under the risk of default and exit from the euro zone in the long run. In addition, the manufacturing data for both Germany and France showed declines, indicating the great influence from the European debt crisis, and the uncertainty in the euro zone will pose downward pressure on copper prices. According to the latest CFTC report, net positions have surged from 6,144 lots to 16,170 lots as of March 19, with shorts dominating the market. LME copper inventories also soared from 320,000 mt to 560,000 mt, weighing down LME copper prices. In China, the People’s Bank of China has drained a total of RMB 1.01 trillion from the market through eight repos from February 18 to March 22, indicating the central bank’s intention to slightly drain the liquidity and to hold interest rate stable. However, the PBOC showed no evident sign of tightening liquidity. With the month coming to an end, cargo holders will be more willing to sell goods in exchange of cash, but downstream buyers may cut purchases due to tight financing, leaving spot premiums over the most active SHFE copper contract price to narrow. These factors are all expected to drag down copper prices to week.